G. Edward Griffin explains how inflation results from the Federal Reserve’s money printing scheme and that inflation is a hidden tax.

Here is an explanation of the two phase of inflation:

1. New money is created out of nothing by the Federal Reserve and is then loaned out to the federal government. The new money inflates the money supply. The government uses that money to pay employees, to finance wars, to fund welfare, to pay off cronies, and more. The favored political class gets the money first, when it has full purchasing power.

2. The second phase of inflation takes place when the politically favored groups spend the money with individuals who then take their money to their commercial banks and deposit it. This is where the real action happens.

The banks themselves create money, usually at a rate of at least 9 to 1 – for every one dollar deposited, the banks can create an additional $9. There is a massive expansion of the money supply.

The banks loan that money into existence and people borrow the money and spend it. Over time, the money trickles down to the common man.

More money equates to demand- with more money, more people are able to demand things. While demand increases, the supply of the goods and services does not increase. The expansion of demand, with only a limited supply of goods, results in higher prices.

When the money supply is expanded faster than the expansion of goods and services, it results in higher prices. Prices appear to go up, but the reality is that the value of the dollar is going down.

It is not unusual for a note holed to sell their note to get a certain amount of cash. But………….when given a quote by a note buyer many time they are shocked at the huge discount and insulted—maybe even angry that a note broker or buyer would try to “steal” their “good” paying note. Any proficient note buyer / broker will offer alternatives in the form of quoting to buy a piece or just some of the outstanding balance. Have you ever bought a full pizza? Have you ever bought just a few pieces of pizza? They can sell a whole pizza or sell it by the slice or several slices. Same principle. As the note owner you are selling some of the payments vs all the payments. By doing so your discount is less and you still have the back end principle / payments or “tail” reverting back to you when the partial note buyer receives all of their purchased payments. The majority of these note sellers are not aware of or familiar with partials.

Sometimes as a note owner you only need a specific amount of cash. Selling the whole note makes no cents. There are multiple ways to architect a partial sale. You can sell 12, 24, 60,100 or however many of payments to bring you the cash your need. For the next x# of months, those payments would go to the partial note buyer. After the buyer is paid back, the remaining payments would revert back to you.

Selling a partial gives the note seller a great amount of flexibility. Partials are always a great tool to use when the note holder has an immediate cash requirement and only needs a specific amount of money to cover a specific situation or for a specific purpose. A partial minimizes the discount and frees up cash. It is the best of the best. The terms of the note remain the same for the note payor/borrower. The only thing that changes is the payments are directed to the third party servicing company. Additionally there is contractual language giving the partial buyer the right of first refusal to buy additional payments if they so choose.

What about an early payoff?

Many notes do pay off early. The average time a house or note is paid off historically is 7 – 10 years. If it is paid off early, there are contractual agreements / documents from the outset that are managed by the third party note servicing company determining the payoff and or re-conveyance.

What if the note goes into default?

Unfortunately some notes/mortgages do go into default. IT is a realty of the financial world. If in fact that happens, the contractual agreement spells out the options. Either a buy back from the partial buyer or proceed with the foreclosure /eviction process with the goal of taking back the property and resell it for fair market value. Both the original note buyer and the partial buyer benefit. The partial buyer is made whole with the balance going to the original note seller.

Three Real Life Case Studies

Houston, TX 11/30/15 – Single Family house

Gerry owned a note on a single family house in a so-so area of Houston. He needed money for some personal issues and needed help. I offered to buy the full at a larger discount due to the issues noted below. He was not real enthused with the offer, so we agreed to a partial purchase.

Deal Points

Good Points

Gerry negotiated a great terms with a sort-of strong buyer. Meaning the buyer put down a very strong $14,000 on a $60,000 purchase resulting in a great Loan to Value(LTV). The 7% interest rate was OK. It had a relatively short amortization period of 60 months with a great on time pay history. The 3 Buyer’s FICO scores were weak, but they had a good job history.

Marginal Points

Due to the drop in oil, Houston lost 44,000 jobs. The neighborhood had some marginal houses, but in the process of changing for the good. For these two items, if felt uncomfortable with a full purchase.

Bottom Line

We bought a 24 month partial with the option to purchase the balance in 15 months. It was a secure, safe purchase and Gerry received what he needed. Out Investment to Value was a very secure 26% with a safe Loan to Value of 57%. The graph depicts what we purchased(blue) and what the seller kept. Within one year we bought the gold portion all in our IRA.

Fast forward 11/30/16

Gerry called requesting if Capstone would be interested in purchasing the balance of his note. He had a lingering debt situation. After a short due diligence period, we closed within 10 days. Again Gerry was happy and we were happy owning the full note. Three weeks later we sold the full note to one of our Note Investor Forum Meetup attendees for his ROTH IRA.

Summary

The note seller had a situation, we provided him a solution—twice. The Meetup attendee was in his early 70’s. He wanted a higher yielding note with a shorter amortization period. This was his first note purchase. He is excited to buy additional opportunities.

_____________________________________________________________

Salem, OR 12/20/16 – Land Parcel

A note collleague referred his friend Kirt his client, Joyce who owned a 13.17 acre out parcel. This was the remainder of a larger parcel where she sold other acreage for a large apartment complex. Joyce wanted funding to purchase some precious metals and have money for a small down payment on a new house. We presented two options—a full purchase and a 102 month partial. She accepted the partial due to the smaller discount and liked the idea of the remaining balance of $68,023 coming back to her in 102 months.

Deal Points

Good Points

Joyce’s buyer had a very good job as a helicopter pilot earning close to $150,000/yr. The servicing company provided a very stable 36 month payment history. She also had a survey of the land which had all utilities. Most likely in the future the apartment complex would expand—buying out the pilot and our partial.

Marginal Points

Joyce did not negotiate good note terms. Only a 4% interest rate (her realtor said that was fair). In reality for land it should have been at least 10%.

Bottom Line

We bought a 102 month partial with the option to purchase the balance in the future. It was a secure, safe purchase and Joyce received the funds she needed. We had a very strong ITV of 15% . It was a true win-win. Our referral partner received a referral fee and sold some gold to Joyce. Joyce was able to buy her house and the Capstone investor had a very safe and secure partial note investment in her mothers’ IRA.

Partials are a unique method of meeting many needs for note buyers and sellers. They should not be over looked. It is an incredible passive investment vehicle for your ROTH IRA

Hedge fund manager and former Goldman Sachs partner Steven Mnuchin confirmed to CNBC on Wednesday morning that President-elect Donald Trump has nominated him for the position of Secretary of the U.S. Department of the Treasury.

Trump’s choice of Mnuchin, 53, who served as the President-elect’s national finance chairman during his campaign, is considered controversial because Mnuchin has never worked in government and his roots in Wall Street would seem to conflict with Trump’s anti-financial industry sentiment during his campaign.

One area where he does agree with Trump, however, is the need for reduced regulation. Mnuchin laid out a number of his initiatives on CNBC’s Squawk Box, should the U.S. Senate confirm him as the 77th Treasury Secretary. One of those is to roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act, which passed in 2010 and is considered by the Obama Administration to be one of its greatest achievements. In various speeches and interviews throughout his campaign and since his election, Trump has vowed to overhaul the controversial financial reform law.

“We (Mnuchin and Trump’s choice for head of the U.S. Department of Commerce, Wilbur Ross, also announced on Wednesday) have been in the business of regional banking, and we understand what it is to make loans,” Mnuchin told CNBC. “That’s the engine of growth to small- and medium-sized businesses. The number one problem with Dodd-Frank is it’s way too complicated and it cuts back lending. So we want to strip back parts of Dodd-Frank that prevent banks from lending, and that’ll be the number one priority on the regulatory side.”

Mnuchin told CNBC that the U.S. economy can sustain a growth level of between 3 and 4 percent. In fact, he called sustained economic growth “our most important priority.”

“It is absolutely critical for the country,” Mnuchin said. “We absolutely can have sustained growth at that level. To get there, our number one priority is tax reform. This will be the largest tax change since Reagan. We’ve talked about this during the campaign. Wilbur and I have worked very closely together on the campaign. We’re going to cut corporate taxes, which will bring huge amounts of jobs back to the United States. We’re going to get to 15 percent, and we’re going to bring a lot of cash back into the U.S.”

In an interview with Fox Business after the announcement of his nomination, Mnuchin said he believes that the controversial government conservatorship of Fannie Mae and Freddie Mac should end and that the private market should have more of a share in the mortgage market.

“We will make sure that when they are restructured, they are absolutely safe and don’t get taken over again. But we’ve got to get them out of government control,” Mnuchin said, according to Bloomberg.

“A resolution of the conservatorship of Fannie and Freddie appears likely with Mnuchin as Treasury secretary,” says Tim Rood, Chairman of The Collingwood Group. “His experiences at Dune Capital, particularly the IndyMac/OneWest purchase and turn around, will most certainly influence his decision-making calculus.”

Five Star Institute President and CEO Ed Delgado said of the nomination of Mnuchin for Treasury Secretary: “I anticipate that with this new appointment, Treasury will continue to promote the department’s mission by encouraging a strong economy and creating economic growth and stability. As the economy further recovers from the Great Recession it is imperative that the housing industry and Treasury work in hand and hand to ensure housing and economic prosperity.”

Mnuchin left Goldman Sachs in 2002 after 17 years with the global investment banking firm to become vice chairman of hedge fund ESL, and he later became CEO of another hedge fund, SFM Capital Management. In 2009, Mnuchin and a group of investors purchased the failed Pasadena-based IndyMac bank from the FDIC for $1.5 billion after the mortgage meltdown and renamed the bank OneWest. In the years immediately following the crisis, OneWest’s foreclosure practices generated considerable controversy, particularly in California.

“If he gets the post, Mnuchin will bring a lot of mortgage expertise to the Treasury Department,” says Rick Roque, President of Menlo. “He bought Indymac, renamed it OneWest and then sold that company to CIT Group in 2015. That kind of experience, in addition to his experience in sub-prime origination, retail origination, and correspondent channels will prove to be very valuable to the non-depository mortgage banking market.”

Investing in real estate notes with your IRA is one of the most popular self-directed IRA investments available. But with this popularity comes common mistakes when people lend their IRA (and non-IRA) money out, secured by liens on real estate. Follow these 10 tips to avoid potentially costly mistakes when choosing real estate as an IRA self-directed investment.

1) You may end up owning this piece of real estate if your borrower defaults. Never loan on something you wouldn’t want your IRA to own. The risk of loaning your IRA investments toward real estate notes is matched by the reward: I routinely see yields from these loans at 12% and higher; however, borrowers can default and you may be left with the property in foreclosure. If you would be upset by the potential of taking over this property in foreclosure, you probably should not make the loan.

2) Do not advance IRA money for home repairs until the repairs are finished; then have the repairs inspected before advancing the money. This is one of the biggest mistakes that I see clients make with their IRAs. They fund the full loan amount expecting that the repairs will be done on the property, but the borrower will actually need a little more money on another. If the loan goes bad, the IRA could end up with a property that hasn’t had the necessary repairs.

3) Do not loan money to someone you would feel uncomfortable foreclosing on. William Shakespeare wrote in Hamlet, “Neither a borrower nor a lender be/ For loan oft loses both itself and friend/ And borrowing dulls the edge of husbandry.” For the most part, I cannot agree with this advice, because lending and borrowing money drives our economy and increases economic activity. However, the part about a loan losing a friend is absolutely correct, in my opinion. If foreclosing on your borrower would cause you heartache, it is better not to make the loan. I have seen friendships destroyed over a loan gone bad.

4) If the loan goes into default, take action immediately. No one wants to admit that he or she has made a mistake in self-directed investing, but delaying action can be costly. You can always stop the foreclosure process once it has begun, but you cannot complete the process unless you start it.

5) Collect interest monthly so you will know if the borrower is getting into trouble. Many borrowers, especially investors, would prefer to pay interest at the end of the loan. But this exposes the lender to additional risk. The purpose of collecting payments monthly is both to:

Make sure the borrower remembers that he or she has to do something with that property in order to avoid the pain of the payment

Let you know if the borrower is in trouble because he or she starts missing payments

Keep in mind that unless you have contracted for monthly payments, you may not be able to foreclose, even if you do discover that the borrower is in financial trouble, because the loan may not be in default. This has actually happened to some of my clients.

6) If you are unsure about how to evaluate the loan, hire a professional to help you. Although a hallmark of the self-directed IRA is that it is “self-directed” — meaning that you make your own decisions and find your own investments — most IRA owners either do not possess sufficient knowledge or, in my case, sufficient time, to properly evaluate a loan transaction. My solution is to hire a professional to help me with the deals. He checks out the borrower, coordinates with the title company, orders the appraisal and usually a survey, makes sure insurance is in place and generally evaluates the loan. Naturally, he charges a fee for this service, which is passed through to the borrower on top of any interest and fees that my retirement plan may charge. This increases the cost of the loan; but in this case, the non-Biblical version of the golden rule applies, which is “He who has the gold makes the rules.”

7) Get title insurance for the loan. The purpose of title insurance is to shift risk away from you and to the title company. In Texas, where my office is, the incremental cost of title insurance is very small when issued in conjunction with an owner’s title policy. Regardless of the cost, making sure that your IRA is protected from title flaws is important.

8) Verify that hazard and, if necessary, flood insurance is in place, naming your IRA as an additional insured. It is very easy to miss this issue when you are trying to get everything completed right before a closing. Borrowers may get insurance at the last moment and simply forget to add your IRA as an insured. But if something goes wrong, you will want to make sure your IRA is named on the check.

9) Insist that the borrower provides you with evidence of payment when property taxes and homeowners association fees become due. The same thing would apply to hazard and flood insurance premiums, although normally you would receive notice of cancellation for non-payment of those bills. Depending on where you live, property tax bills can increase quickly due to penalties and court costs, which reduces your equity position in the property.

10) Get a personal guarantee if lending to an entity or to an individual with some weakness. When things are going well, you might be tempted not to insist on a personal guarantee, and indeed many borrowers will resist this. However, as we all have discovered recently, circumstances do change, and a personal guarantee may be helpful in collecting the debt. I collected on a note once where the property had decreased substantially in value due to vandalism and market conditions. Instead of foreclosing, I had my lawyer send a letter explaining to the guarantor, who had a significant amount of assets, that he was personally liable on the debt and that if he were unable to satisfy the note, I would pursue legal action against him and the borrower. A week later, a cashier’s check showed up that satisfied the lien.

There’s more to know when considering real estate for your self-directed IRA
This list of suggestions is not meant to be exhaustive. Other issues you will need to understand include:

Your lien position (personally, I only invest in first-lien loans)

Any state usury laws that might apply to the loan

At least a general idea of what the foreclosure process is in your state, in case the loan goes into default

Always get good legal counsel to assist you with loan documentation. Because the borrower traditionally pays for all expenses including legal fees, there is no reason not to have an attorney draw up loan documents.

Lending can be an excellent investment in an IRA. It is relatively easy to do and, if done correctly, has a comparatively low risk. Getting to know successful real estate entrepreneurs who borrow your IRA money may also lead to other, intangible benefits as well. Finally, be sure to learn the pointers for buying real estate with your self-directed IRA before you take any actions.

Tax-Free Education Dollars?

How to Legally Bypass the Tax Man on Earnings for ALL Education Expenses with IRS Permission!

Have you ever stopped to wonder how much money you’d have to earn over your lifetime to send ALL your children from Kindergarten all the way through Grad School?

Then there’s the grandchildren. What about helping out with their education?

Chances are, as you were pondering, you forgot to take into account Uncle Sam. Now add 40% more to whatever number you came up with to include that tax haircut on your earnings.

Just the thought of it all makes me sick!

A Special Gift from Congress

Whatever your number is, can you imagine being able to legally avoid taxes completely on your earnings for education expenses?

If you embrace the gift that Congress gave us over 10 years ago… you won’t have to pay state or federal income taxes on the income first… allowing your education investment to grow tax-free.

Too good to be true?

Say hello to the Coverdell Education Savings Account!

10 Compelling Reasons to Get Started With Coverdell Education Savings Accounts Today

This valuable and specialized information is available to every parent or grandparent who cares about their family’s education . . . both now and in the future. Establishing a CESA allows you to make Non-Traditional investments, such as buying a rental house or lending money, and then paying for tuition, uniforms, dorm rooms and computers from the earnings of the investment without first having to pay State or Federal income tax.

Let’s just call it a 40% raise. The same 40% in State and Federal taxes you won’t have to pay. My name is Walter Wofford and I used a CESA to help pay for my daughter’s expensive college tuition bill. You can do the same with all education related expenses from K1 until they graduate, quit or turn 30.

Here we go . . .

1. Your Kids Will Put Your Picture Frame on the Mantel.

Establishing a Coverdell Education Account (CESA) for a family member is probably the most important action you can take to enhance the student’s life and their future family’s life. “Yes, Grandpa helped me go to college and I will never forget it”, said Sara. For the parent, the most stressful time while raising children is writing the checks for their education. So your action of establishing and directing a CESA will not just help the students but their parents as well.

2. Education Expenses are only going to Increase.

Tuition has increased sharply NATIONWIDE from 2008 to 2013. Over 20%! Who knows what percentage increase the next 5 years will bring? Plus EVERY State has dramatically decreased the amount they are subsidizing the College Education System. States have cut back 20% decrease in the last 5 years. Parents and Students are getting squeezed . . . and will continue to be squeezed.

3. Tax Rates are ONLY going to Increase.

As a result of overleveraging our county, Congress has no choice but to raise taxes. No one argues with that fact. With a CESA, you don’t have to pay any State or Federal tax on the earnings if spent for Qualified Education Expenses. This separate Tax Free account is not impacted by Congress’s inability to balance the runaway budget.

4. You can use Your Skill and Your Knowledge to Direct the CESA’s Non-Traditional Investments.

Since this account can be truly self-directed into investments You understand, you don’t have to delegate the decisions to someone who has neither Your skill nor knowledge.

Here are some examples of CESA investments that you might understand (or know someone who does) to enhance returns:

Buying Rental Houses

Buying Moetgages or Notes

Lending

Options on Real Estate

Other valuable assets

Wholesaling houses

Buying income steams at a discount

Buying medical collections for pennies on the dollar

Joint venturing

Start up companies and much much more!

5. This Multi-Generational Education Trust Can Last up to 99 years… Way Past Your Lifetime. Now that’s Leaving a Legacy!

Since Congress made the contribution rules permanent in January 2013, this trust fund can literally last for generations. If the money is not spent by the time the student turns 30, it can be passed along Tax-free to almost any other family member under the age of 30. You can design CESAs around the spacing of the student’s ages.

6. Your College Kids Actually Leave Home.

This may sound a little harsh, but parents need a break after 18 years of care giving and the students need a break from their parents. Independence is part of growing up.

By establishing a CESA, there may be enough money to pay for dorms in a far away University. It has been reported that 57% of college students live at home today (source: The Wall Street Journal, July ‘13). I suspect a big reason is that they can’t afford to leave home and pay for tuition.

7. You Can Combine CESA Investments with other Tax-Free & Tax-Deferred Accounts.

Many people have Traditional and Roth IRAs. Some have SIMPLE and SEP IRAs. Some even have 401(k)s and Health Savings Accounts (HSAs). You can combine any and all of these accounts with a CESA (or multiple CESAs) to make investments in entities like business startups (Apple) and even buying shares in a newly formed bank. You will have some real investment clout by combining accounts.

8. The CESA Is Not You and Never Will Be!

Properly established CESA accounts separate the student’s assets from the person who established the account. This is particularly important in tax preparations, asset protection and for qualifying for student loans. We need to talk more on this topic. Very important!

9. You can establish a CESA for All Your Children or Grandchildren and Join Them All for ONE BIG INVESTMENT & Even Leverage the Investment with Debt. There are no limits on how much profit a Coverdell ESA can make.

By forming a managing entity, each CESA can join other CESA for bigger dollar amount investments, such as building a spec house in an up and coming neighborhood. Or, buying raw land and then subdividing into smaller parcels and then sell with financing. Amazing!

10. If You Don’t Do It… Somebody will Definitely Feel the Pain of Regret.

Since this is a tax-free account, you will pay unnecessary taxes on the income…if you don’t do it.

Some family member won’t get the best education (or any education)…if you don’t do it.

You next family member might enter your family circle from the oil change department of Jiffy Lube…if you don’t do it.

College widens circles of influence but only if the student is there. If a grand parent creates the CESA, their children (the students parents) will feel the squeeze . . . IF YOU DON’T DO IT!

I will leave you with this…

“Deliberation is the work of many men. Action of one alone.” – Charles DeGaulle.

What’s the Next Step For You?

Are You Ready to Bypass the Tax Man on ALL Education Earnings With the IRS’ Permission?

I’d love to have an intelligent conversation about your establishing and growing a Coverdell Education Savings Account for your loved ones.

Source: This publication was written by Walter Wofford and published here with permission. All rights are reserved by Tax Free Education Dollars under State and Federal Copyright Law. No part of this publication may be reprinted, reproduced, paraphrased or quoted in whole or in part by an means.

Disclaimer: This publication is intended to provide accurate and authoritative information with regard to the subject matter covered. It is offered with the understanding that neither the publisher nor the author is engaged in rendering legal, tax, or other professional services. If legal, tax, or other expert assistance is required; the services of a competent professional should be sought.

From the Declaration of Principles Jointly adopted by a committee of the American Bar Association and a committee of Publishers and Associations.

This information is intended for instructional purposes only. Every effort has been made to reflect the applicable laws as of the date of the publication of this book. However, this is a dynamic field of endeavor in which new laws are enacted, old laws revised, and/or reinterpreted on a continuing basis and where statutes, rulings and case law are constantly changing. Readers are advised to proceed with the techniques descried herein with caution. The Author, speakers, printers, licensees nor distributors makes no warranties, express or implied about the merchantability or fitness for any particular use of this product.